Here’s what Canada and Mexico will hate about Trump’s NAFTA plans

President Trump held a rally in Cedar Rapids, Iowa, on June 21 and discussed his decision to stay in NAFTA with influence from Canadian Prime Minister Justin Trudeau and Mexican President Enrique Peña Nieto. (The Washington Post)

The administration’s goals for renegotiating the North American Free Trade Agreement, released late Monday, may have looked dry. To trade lawyers, they were fighting words.

The 17-page document that the administration put out was admittedly kind of hard to digest, even for trade lawyers. Because NAFTA is so huge — trade among the United States, Canada and Mexico was $1.1 trillion in 2016 — the negotiating goals had to cover a lot of ground, too.

But disguised in the dry, sanitized language of trade agreements, there was plenty of drama. Four points in particular seem destined to generate conflict with Canada and Mexico, the United States' largest export markets.

Scrapping a panel that some U.S. industries hate and Canada loves

The administration proposed getting rid of NAFTA's Chapter 19 dispute settlement mechanism, which has long been a thorn in the U.S.-Canada relationship. Such a move could result in a lot more tit-for-tat trade actions and potentially disrupt business between the countries.

When a U.S. industry believes that a Canadian or Mexican competitor is gaming the rules of trade by receiving unfair subsidies or selling its products in other countries at ultra-low prices, it can appeal to a U.S. international trade court to put extra taxes, called anti-dumping or countervailing duties, on those products. But Chapter 19 allows a foreign country, like Canada, to appeal this decision before a panel made up of trade experts from both countries.

In practice, having Chapter 19 has meant there are a lot fewer trade cases among the United States, Canada and Mexico, because there’s also a chance they will be referred to this panel and dismissed, says Chad Bown, a senior fellow at the Peterson Institute for International Economics. Bown's research shows that 9.2 percent of U.S. imports from China are covered by these duties, compared with 2.7 percent of imports from the rest of the world, and only 1.3 percent of U.S. imports from NAFTA countries.

But some U.S. industries, including the lumber industry, have argued against the Chapter 19 dispute settlement mechanism, claiming that it prevents the United States from fully enforcing its own trade laws. Canada has won numerous victories before these binational panels that have reversed decisions by U.S. officials to impose duties, including on lumber.

“If you take that away, you could see a lot more anti-dumping and countervailing duty cases against Canada and Mexico, and that’s why I would expect to see Canada and Mexico push against this,” Bown said.

On Tuesday, Canadian ambassador to the U.S. David McNaughton said in a speech in Edmonton that Canada would be willing to discuss whether the dispute mechanism needs to be “improved or modernized. … But there needs to be some kind of a dispute resolution mechanism. It’s part of the agreement.”

Removing a special exemption for Canada and Mexico from broad U.S. industry safeguards

The United States can impose broad barriers, like tariffs or quotas, to help a U.S. industry that is “seriously injured” under a section of the 1974 U.S. trade law known as Section 201-Global Safeguards. But under the terms of NAFTA, Canada and Mexico are eligible for exclusion from those penalties under certain terms. That means that when the Bush administration imposed broad tariffs on steel imports in 2002, for example, the measures didn’t affect the other countries of North America.

In its negotiating goals released last night, the administration proposed scrapping that exemption. That means that Canada and Mexico could become ensnared if the administration decides to do something to, for example, protect the U.S. solar industry, a safeguard case it’s currently considering.

For obvious reasons, scrapping this exception for Canada and Mexico seems likely to generate their opposition. Speaking on Mexican television Tuesday, Economy Minister Ildefonso Guajardo expressed concern about the United States getting rid of this provision. “This will all have to be subject to the three sides, being in agreement in the process,” he said, according to Reuters.

Eliminating more barriers for agriculture

In its negotiating goals, the administration proposed getting rid of "non-tariff barriers to U.S. agricultural exports including discriminatory barriers, restrictive administration of tariff rate quotas, other unjustified measures that unfairly limit access to markets for U.S. goods, such as cross subsidization, price discrimination, and price undercutting.”

Sound scintillating? No? Well, experts say that this jumble of trade jargon is actually pointed at a heated dispute the United States has with Canada over products including dairy. U.S. farmers and their representatives argue that Canada has been unfairly protecting its dairy market, hurting U.S. interests in the process. This provision in the NAFTA goals would do away with the protections Canada is still able to maintain on the market, opening it up to American competition.

This provision is a little different than the first two, says Bown of Peterson. Here, the United States is actually proposing removing barriers to trade, whereas in the provisions about Chapter 19 and global safeguards, they are asking for what he calls a “less-free free trade agreement.” Regardless, the Canadian dairy industry is likely to fight fiercely against them.

Adding enforceable labor and environmental provisions

The administration’s NAFTA goals contain several provisions on labor and the environment that trade experts say are very general versions of what was negotiated in the Trans-Pacific Partnership — including the right for workers to form unions, the abolition of slave and child labor, and commitments to international agreements for the protection of endangered species. For the first time, a new NAFTA would make these provisions part of a core trade agreement and enforceable through trade action.

Mexico, Canada and the United States agreed generally to these principles before, as part of the TPP, a deal that Trump officially withdrew from on his first Monday in office. But when Canada and Mexico agreed to these terms, they were also receiving concessions from the nine other countries that were involved in the TPP negotiations, not just the United States. It’s not clear whether Mexico, which has the most work to do to meet these requirements, will oppose them now that they are receiving less in return.

Correction: A previous version of this story incorrectly said that Canada and Mexico are always excluded from Section 201 Global Safeguards. They are eligible to be excluded under certain parameters. The story has been updated.